Forget About Seeking Simplicity – It’s Time to Get Real

Don’t be misled by the name: Economic Man is not the superhero we need to deliver us from a slow growing economy. Instead, Economic Man is a creation of classical economists who used the traits they assigned to him to craft theories of economics.

Economic Man makes logical, rational, self-interested decisions that weigh costs against benefits and maximize value and profit to himself. Economic Man is an intelligent, analytic, selfish creature who has perfect self-regulation in pursuit of his future goals and is unswayed by bodily states and feelings.

But, notes author Craig Lambert, Economic Man has one fatal flaw: he does not exist.

10.6 Billion Objections to Economic Man

Classical and neoclassical economists who relied on the assumption of a perfectly rational, perfectly self-regulated Economic Man to develop their theories of economics therefore ran into some problems when trying to apply those theories to the real world.

Consider, for example, the gambling industry and the enormous pleasure palaces in Las Vegas, Nevada. Despite the gambler having access to all of the information he could possibly need to conclude that gambling against the house is a losing proposition, more than 42 million people flocked to ‘Sin City’ last year and lost more than $10.6 billion to Nevada casinos including nearly $6 billion to the casinos on the famed Las Vegas Strip.

To explain why gamblers make less-than-ideal economic decisions in Vegas, or why people don’t start exercising when they know they should, or why young people don’t save for retirement instead of taking a European vacation, or any of the other irrational economic decisions that people make, economists developed a new branch of their discipline: behavioral economics.

The behavioral economists weren’t content to describe the world or the decisions of people in that world as they should be. Instead, behavioral economists sought to describe the world as it is and account for the decisions of people as they actually were.

Considering the world as it actually is rather than as a simpler, easier to model version of reality, is one of the keys to understanding and mastering complexity. Though it is certainly easier to break down a complex system into smaller sub-systems with regular and predictable features, it won’t explain much about the greater system itself.

The Whole is Greater than the Sum of Its Parts

This is not a new idea, mind you.

Aristotle argued in Metaphysics that “In the case of all things which have several parts and in which the totality is not, as it were, a mere heap, the whole is something beside the parts”.

The same idea was taken up millennia later by novelist JRR Tolkien who spoke of a tapestry wherein “the picture is greater than, and not explained by, the sum of the component threads”.

Describing and mapping real scenarios – no matter how messy they are – allows for the capture of these synergies and this richness of complexity. Then, going a step further, by modeling and simulating systems as they really are we are able to leverage the trapped value in those systems and offer the sorts of interconnected and reliable insights into the future that an interdependent world like ours in the twenty-first century demands.

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